Good morning, ladies and gentlemen, and welcome to Mistras Group's earnings conference call for its fourth quarter ended December 31, 2017. My name is Liz, and I will be your event manager today. We will be accepting questions after managements prepared remarks. Participating on the call from Mistras Group will be Dennis Bertolotti, the Company's President and Chief Executive Officer; Edward Prajzner, Senior Executive Vice President, Chief Financial Officer and Treasurer as well as Jon Wolk, Senior Executive Vice President and Chief Operating Officer who will be available for questions. I will now hand the conference over to Mr. Bertolotti. Please proceed.

Thank you, Liz. Good morning, everyone. On today's call we will review Mistras Group's financial results for the fourth quarter ended December 31, 2017. Before I begin my comments on the quarter’s results, I’d like to welcome our new CFO, Ed Prajzner to the call. He’s been with Mistras Group since early January and he will be speaking shortly. I would also like to thank Jon Wolk, our Chief Operating Officer for his previous service as CFO. Jon will be joining us during the Q&A session of today’s call. I am very pleased to report that our executive management’s succession and transition is essentially complete now. We are all keenly focused on our individual responsibilities and combined initiatives going forward. And I will elaborate further on this end at the end of the call after Ed’s prepared remarks. Now getting back to the fourth quarter of 2017, it was a very solid performance with revenues up 10% and adjusted EBTIDA up 24%. Services, our largest segment led the overall improvement with a 17% increase in revenue and 170 basis point improvement in gross margin. Services still has plenty of room for operational improvement, and I'll update you on our action plan later in this call and Ed will provide you a preliminary outlook for 2018. International Segments had a negative comparison to the fourth quarter versus prior year with revenues declining by 13% due to weakness primarily in the Germany and U.K. markets. We are however optimistic about turning the corner and benefitting from improvement actions that we currently undertook within these countries. The Products and Systems segment stabilized in the fourth quarter from earlier declines in 2017 with revenues increasing 5% over prior year and operating profit improved to break even versus an operating loss in prior year. With…

Thank you, Dennis. I’ll remind everyone that remarks made during this conference call will include some forward-looking statements; the company’s actual results could differ materially from those projected. Some of the factors that could cause actual results to differ are discussed in the company’s most recent annual report on Form 10-K and other reports filed with the SEC. The discussion in this conference call will include certain financial measures that were not prepared in accordance with U.S. GAAP. Reconciliations of those non-U.S. GAAP Financial measures to the most directly comparable U.S. GAAP Financial measures can be found in the tables contained in yesterday’s press release, and in our related current report on Form 8-K. These reports are available on the company’s website in the investor section and on the SEC website. Before giving a fourth quarter financial update, I want to give a brief summary having been on board as CFO now for two months. I have been busy studying the business and visiting various labs. I have been extremely pleased with the level of energy, focus and passion that I see throughout Mistras' Groups business. I am very excited to be on board, and looking forward to partnering with Dennis and Jon, the entire senior leadership team as well as Sotirios in the board moving forward into what I believe will be a very bright future for Mistras. Now getting back to the results in a little more detail that Dennis summarized. Revenues for the fourth quarter of 2017 were $187.6 million, 10% higher than the prior year’s fourth quarter. Services Segment Q4 revenues grew 17% over prior year, attributable to high single digit positive organic growth coupled with mid-single digit acquisition growth. This growth was achieved despite continued weakness in the challenged region. International Segment revenues decreased 13%…

Thank you, Ed. I’ll provide a brief update on our ongoing initiatives. We remain focused on actions and increase our accountability, ownership, focus, and speed of execution. These actions have three common things; repositioning, investment and cost reduction. Throughout 2017, we organize leadership structure at the corporate level and in each of our segments. Although we are still searching for our sales leader, Jon and I are now firmly entrenched in running the company and driving improved results as addition has enabled us to a greater degree. At the segment level, we have positive momentum within each of our four reasons, within our services segment, having won new evergreen contracts in three out of the four regions and still actively pursuing others in the fourth region. We are also busy innovating new ways to more effectively deliver our field services and we’ll have more on this discussion in the future calls. Results in our international segment are developing good momentum. Our French Company has commenced operation, servicing Safran and will show impressive growth all year. We will suffer difficult comps for Germany and the U.K. in Q1, and then we expect to comp positively in all of our international operations for the remainder of the year. And our Products and Systems Segment entered the year with a good backlog in its core business. We are targeting potentially an additional $10 million of unbudgeted mechanical services revenues and we are making good progress in our sales process. Regarding our investment initiative, we are very excited about each of the three acquisitions we made in 2017. We are in the process of investing to expand the capabilities of our Phoenix Arizona in-house provider, a mechanical service to the aerospace industry. We are excited about our recent acquisition of West Penn, the in-house…

[Operator Instructions] Our first question comes from the line of Justin Hauke with Robert W. Baird. Your line is now open.

Yes, hi good morning. Thank you for taking my question. So you know obviously we’ve talked a couple of times in the last couple of months with the updates that you’ve given. But one question I did have on the quarter, is particularly given the comments that you gave on maybe some weakness that continues in the first quarter, so international, the margins seem to been pressured a little bit more than expected, and you can in a little bit below the guidance and it sounds like that continues in 1Q, so can you just give a little bit more color about the nature of what was going on there, and the lingering costs?

Hey good morning, Justin this is Jon. Thanks for the question. International in Q4 we had gotten into sort of an offshoot line of business in our U.K. subsidiary and unfortunately had an unprofitable contract that we recognize the full impact of in Q4 as it became more apparent that, that contract had lost money for us. So as a result, we’ve exited that line of business, and also restructured the U.K. business, so we’ll see improvement in 2018 compared to 2017. With regard to the comment about Q1, last year in International, Q1 was very strong, we had performed well in the U.K. and especially Germany, and subsequent to Q1 of last year, as we have said in previous calls, we did have a couple of customer defections if you will in Germany, one relocated, one, in-sourced product production. And that caused us to suffer negative comps in Germany for the remainder of the year. This year in Germany we’re very confident that we will have organic growth and improvement and a rebound in profits. So I think, as Dennis said in his comments, once we get beyond Q1 we’ll have easier comps and we’ll be performing better in Germany. And in the U.K. we were performing well, again in Q1 of -- ups through Q1 of last year, but we’ll have much easier comps in that subsidiary as well.

Great. That’s helpful for just expectations in setting where we are. I guess my second question is just not on the capital allocation. You mentioned no buybacks in the quarter and no plans to do that. Is the thought process there with the improved free cash flow of 2018 versus 2017? Is it focused on debt reduction? Or how you’re thinking about the capital allocation here?

Justin, it’s Dennis. Yes, its reduction of debt. It’s also looking at acquisition pipeline. We believe we've got a lot of opportunity to keep growing the business, so we’re looking at both.

Okay, great. And maybe just the last one on tax reform, I know that you haven’t finalized that, but does the cash flow number include benefits from tax reform or that will be incremental to the guidance that you’ve given at this point?

This is Ed here, Justin. Very minor, we assume that rate would stay very consistent in that cash flow estimate that we gave out for the outlook.

Okay, great. I’ll leave it there. Maybe back in. Thank you.

Our next question comes from the line of Matt Duncan with Stephens. Your line is now open.

Hey, good morning guys.

Hey, Matt.

Good morning, Matt.

Ed, welcome to the call and to the company. First question I’ve got just on organic revenue growth. You are seeing that continue to pick up here in the fourth quarter. Can you talk about how broad-based that is? I mean, is that -- are you seeing that across all end markets or some standing out more than others? And as you look at to build-up your growth forecast for this year sort of same thing looking out this year, do you expected to be fairly broad-based? Or is this really be driven more by maybe the oil and gas side of the business starting to perk his head up?

Matt, it’s Dennis. I agree with you. I think it’s primarily oil and gas, but I think all businesses, segments that we operate in, aerospace, power others are – wind and everything else are still doing well. Geographically, there’s probably can be a little differences here and there especially in the early part of the Q because of weather differences and who’s getting an early start. But for the most part customers, while trying to not get crazy on their spending, they’re lot more comfortable on their budgeting and process and commitments to what they're going to do. So oil, gas, chemical, power, all of our customers seem to be pretty comfortable on what they are doing for 2018.

Okay. That helps. Appreciate it. On the EBITDA guide for this year, going back to January I believe you guys has said it that time you would get 100 basis points or more of EBITDA margin expansion this year. It looks like at the midpoint of your guide you’re expecting about 200 basis points of expansion now. What's changed since January?

This is Jon. I’ll take that, Matt. I think as we have refined the budgeting cycle we’ve just become more confident in our outlook for the services segment despite that customer – more as customer choosing to use somebody else effective Q2. We just feel very good about the impact of the cost reductions that we’ve made and the organic growth will have absent that large contract.

Okay. So when I look at that 200 basis point of expansion, how much of that you guys expecting to come from gross margin versus other operating expense leverage?

That’s more of the gross margin line. Operating expenses, there’ll be some impact of course from the cost reductions but it's more at the gross margin line.

Okay. And the last thing just to clarify because I think I may have miss the comment on international in the first quarter. Dennis, what you were saying, you guys expect to kind of the flow of the international to be?

Q1 would be a little bit tougher comp for international. We believe the second, third and fourth quarter will be favorable for international.

Okay. So when I look back to last year Q1 wasn't all that strong really. Is there a specific piece of business that you had in Q1 last year that you can't comp this year. So, are you expecting it to be down year-over-year or just maybe not grow as much as that 10% rate for the full year?

Matt, it’s Jon. In the international last year we had a pretty good first quarter, I mean, Germany was very strong in last year’s first quarter. U.K. was profitable, subsequent quarters of that kind of fell off. So comparatively we’re growing sequentially in Germany and so we see the momentum picking up as the year goes on and also the timing of work and within the international side. In services, of course, the first half of last year was sort of a continuation of the fall 2016. I think the spending was really in the doldrums for about a year within oil and gas in the United States and North America really and we saw pickup in the fall. So, I think it'll be a weak comp in services that we’re comparing against, but a tougher comp internationally for first quarter of 2017, 2018 comp.

Okay. All right. Appreciate it, guys. Thanks.

Thank you.

Our next question comes from the line of Edward Marshall with Sidoti & Company. Your line is now open.

Hey, Dennis and Jon. I’m curious, I’m sure you’re listening, hello to you too.

Thank you.

I’m curious. I just want to corral kind of the international business a little bit. Kind of talk about that unprofitable contract maybe you can talk about how large it was in and maybe what the drag was in the particular quarter. What I'm trying to get at, its look like 2017 looked a lot like 2015 and you show some meaningful improvement in the EBIT margin next year. And I just wanted to kind of understand how you get there? We’ll start with that.

All right. It’s Jon. Ed, thanks for question. The unprofitable contract in U.K. was maybe a couple million pounds of revenue, maybe 2 to 3 million pounds, but the problem is instead of having an expected profit it had a loss. And the loss was meaningful to that segment’s results, so the delta was probably a couple million pounds from swing from profit to loss which U.S. dollar equivalent, it was closer to $3 million, let’s say of impact. So a bitter disappointment or bitter pill for us to swallow last year and it really impact us more in the second half particularly Q3 but then most decidedly in Q4.

Got it. And so regardless of the comps as I start to look at pass Q1, I mean, the embedded guide was still 400 basis points. Is the majority of that really just kind of the shift into the aerospace businesses? I mean, you talked about Safran a few times. And is that kind of how we should be thinking about?

It's a couple things. You got the Safran contract coming online and that's going to be profitable organic growth right there in our prime sector. So that's one thing. You’ve got, year-over-year you’re going from a negative comp to a positive comp in the U.K. You’ve got Germany picking up beyond Q1 as Dennis has said with some organic growth there and pick up. So I think it’s a combination of all three, plus we did some cost reductions there. So I think it's really all four factors.

Ed, it’s Dennis. Additional I think what we’re doing is trying to spend a lot more time understanding utilization and nuances of the international. So we want to get in front of it and we’re going to try to prevent the surprises that have bit us in the past. So we’re feeling lot more comfortable not only with some markets coming behind us, but we have – we’re working on to get better and better visibility all the time, so we’ll eliminate anything that does happen. This contract is something that caught us and we shouldn't hope and we're put in controls so that if something like this happening again, we’ll catch earlier.

Is there something unique to the international versus the services that makes a little bit more challenging to kind of -- I mean it trends below the services margin as well. I’m just trying to get a sense to that business and maybe how you look at it internally. And is there maybe more focus on that going forward?

Yes. It’s a couple of things. One is the model of labor utilization, the fact that they have to pay people all the time regardless if they're busy or not, so it makes them a lot more necessary to understand what’s coming at them. And in services market in U.S. we can flex the workforce up and down much quicker where they can’t do that there, which is why we have to be in front of it. And it's smaller businesses, so we’re trying to work with him to understand how to operate that better. So I think us putting better guidance and oversight to help them, look at their numbers and do better job on forecasting, I think we can get there.

Yes. This is Jon. Just to add on to that. I agree with everything Dennis said, but in addition in 2016 international obviously had a higher operating margin than U.S. businesses did. So it’s not necessarily always going to lag behind.

Got it. And so there is functional and structural differences between, say, the international and I guess the services business domestically. When I think about the services, I’m looking at the same thing, I mean, peak margins in 2015, revenues are X kind of West Penn or $10 million, $15 million below that 2015 run rate, you kind of getting back to that margins. Is West Penn that profitable for you guys kind of as we move into 2018? And how does the disruption of the customer kind of work into that guide as well?

We think aerospace market itself is really a richer market for us. There is a lot of growth potential for us in there. West Penn, the one we did in Arizona which was some array. We’re doing a lot of acquisition focus on aerospace, so it’s not particularly just one location, we believe it's a very good market for us. We’ve been in it. We just haven't been in it as strong and as forceful as we need to. We’re putting lot more energy into that market. So we do believe it's a growing market. It's got quite a few more years of commercial growth in there, so we also see a lot of room for it to grow with us.

Yes. The other thing, its Jon, is the revenues that we’ll be losing from the exit of large customer. The margins on that contract were lower than our typical contract margins, so you’ve got sort of both dynamics going on.

Got it. And you mention acquisitions earlier and you talk a lot about aerospace throughout this call and we know that's kind of a growth initiative, as you look to spend capital, I mean, is aerospace what you're targeting or are there other areas that you think is a good bolt on for Mistras?

Ed, I mean, we look at three -- primarily, we’re looking at mechanical. We’re looking at pipeline. We’re looking at aerospace. If I would say where our focus is? It is lot more aerospace. So -- but all three. And the mechanicals another big growth for us because mechanical complaint to aerospace segment and to power and to chemical or oil and gas. So mechanical has got some legs for us as well.

Got it. And final one from me, I just – you don’t have direct commodity exposures relates to kind of recent tariffs, but your customers do, I mean, just as a point of reference the Keystone pipeline looks like it might cost $300 million more based on kind of tariffs. What are the conversations, initial conversations you're having with some of your customers that as it relates to kind of tariffs and higher cost as we move forward in 2018? And how does that play into your guide?

Ed, it’s Dennis. I’ll tell you the truth. It’s really too early for us to have any customers really approaching us on any changes or thoughts. They might be inside their own rooms discussing what it looks like, but we haven't seen anything at our level as far as budgets or anything else.

Appreciate it. Thanks guys.

Thanks Ed.

Our next question comes from the line of Bobby Burleson with Canaccord Genuity. Your line is now open.

Hi. Good morning.

Good morning, Bobby.

Just curious maybe you could touch on fee pricing environment, you’ve got a key competitor. It’s been pretty irrational, pretty aggressive. I want to get an update on what you're seeing competitively there in terms of pricing?

It’s Dennis. Bobby, the market is growing and we believe we've got enough room to find our own way and do what we’re doing. Anytime there’s irrational movement out there it’s certainly doesn't help, but we've been just still plotting our own way and we haven't really seen that become a major issue.

So, no real change there, but not a major issue for you guys?

Yes. It’s certainly better when everyone's pulling in the same direction, but everyone’s got their own plan. We’re still sticking to our plan. We haven’t found a reason to change it. Geographically there are some areas where you see that a lot more than other areas. So sometimes it becomes a problem but overall across the entire North American market it’s really hasn’t been much of an issue at all.

And then it sounds like mechanical, you’re seeing some progress there and that’s an area focus in terms of potential M&A. Wondering how the progress is with your margin outlook. So does that sounds it could be higher ultimately operating margins that NDT, any evolution of your thought there? Any evidence that that’s playing out the way that you wanted to?

Yes, Dennis again. Certainly it’s a market for growth for us, because it really plays into the value that the customers are looking for. They’re trying to find ways to save money and by having less and less vendors on their side it adds to the safety component. Less people working around, better savings for them. So we see it as a growth. The margins, to your points it’s at least equivalent to where we’re at. We don’t think its going to be a lot delta either side of where we are for the NDT. So we know it won't hurt us and the margins will be at least where we at. But we also see just so much more work in power, gas everything else in all of our markets for the potential for those two hooking up.

Bobby, it’s Jon. I’ll add to that and just say, we recognize that there's potential as Dennis is said to be a higher or lower quite frankly than our NDT margins. And so a lot of this is going to be based on the choices we make and the type of business we choose to pursue. So we’ve been very careful and we’re trying to maintain that discipline. We think we will about the type of business we’re pursuing which is adjacent to NDT as Dennis just said. We’re not looking to get out away from what we’re good at. And so for that reason and because we’re being choosy we think the margins will be just fine.

Okay, great. And then, I know its little too early on the tariffs to kind of understand the potential impact, but wondering on tax reform what you guys are hearing in terms of what your customers might do CapEx wise oil and gas here in North America -- in the state whether or not you see a benefit, any other end markets where you expected benefit in terms of an uptick in capital spending?

Yes. Bobby, it’s Dennis. Our conversations, they haven’t waiver all from what they’re talking about for 2018. I don't know if we per se seeing them adding to their plans, but we believe they're very solid and what they’re doing, we have high confidence in what were given for numbers for 2018 because the customer seem to have fairly strong confidence in what they're planning. I just don’t know if its trickle downwards made a positive benefit on what we’re seeing yet.

And would you say that your customer’s confidence has increased at all in the conversations you’ve had since tax reform was pushed back?

Yes. I mean, it hasn't gotten less for sure. Again, we haven't heard them speaking because of the Tax Act that they’re going to do anything more. But there hasn’t been any wavering of their commitments to their spend, to their outages or anything else that they're doing or even shop customers. there’s still lot of investment in the aerospace side and growth there, so all that seems to be positive.

Okay, great. Thank you.

Thanks, Bobby.

[Operator Instructions] Our next question comes from the line of Tahira Afzal with KeyBanc Capital Markets. Your line is now open.

Hi, gentlemen. This is Shawn [ph] on for Tahira today. First one from us is just a high level question on the oil and gas side. We’re just kind of wondering to the extend oil prices remain stable. How are you guys thinking about sort of the longer term growth rate for oil and gas and just taking into account some differed maintenance activity over the last few years and just curious to get longer term view from you guys, what you’re planning around?

Hi. Its Jon. Thanks for the question. I think in general we’re cautiously optimistic, I mean, the whole industry has been through a really significant downturn that was pretty deep and I think that spending patterns are starting to come back which is why we’re feeling pretty good about our guidance for this year and things coming back organically. It's hard to really get a sense of that measure. I think that of oil price predictions have range widely for the future, but I think our planning assumption is that assuming today's ranges of oil prices, but I think that spending levels considering deferred maintenance that you alluded to you are likely to increase somewhat, I wouldn’t think a double-digit level but certainly be in this range and in slightly positive going forward.

Okay. Thanks. And then just moving over to the margins, obviously some nice margin expansion reflected in the 2018 outlook here, I’m just wondering as we’re exiting 2018 are we kind of at the full potential in terms of margin run rate? Or is there some more leverage that can be pulled internally? Just trying to get a sense of where some incremental margin expansion could come from into 2019?

Shawn, it’s Dennis. We believe we still have opportunity for growth. Our performance and execution can get better. We can eliminate surprises. Our focus on the types of industries and the segments within those industries that we’re covering not only aerospace, not only more oil and gas with mechanical but the types of mechanical. I think the strategy that we got is not going to help us on the revenue, but I think its going to sharpen our ability to do much better on the margins as well. So we believe we still got a lot of room yet to make ourselves stand out.

Excellent. Thanks very much for your time.

Thank you.

I’m showing no further questions in queue at this time. I’d like to turn the call back to Mr. Bertolotti for any closing remarks.